Frontier to Buy AT&T’s Connecticut Wireline Business

By Thomas Gryta, Ben Fox Rubin

Frontier Communications Corp. agreed to buy AT&T Inc.’s landline telephone, broadband and TV operations in Connecticut for $2 billion in cash, expanding its base of operations and shoring up its ability to pay its dividend.

The deal will boost Frontier’s adjusted cash flow in the first year after closing, helping reduce the burden of its dividend payouts. Dividends at regional telecom companies have been a concern for Wall Street, and Frontier cut its payout to 40 cents a share from 75 cents last year.

“If we were going to do another acquisition, we wanted to make sure it would not affect the current dividend and would strengthen our dividend position,” Chief Executive Maggie Wilderotter said.

If regulators sign off on the acquisition, Frontier will net more than 900,000 voice connections, about 415,000 broadband subscribers and 180,000 customers of AT&T’s U-verse video service. It comes less than four years after Frontier paid about $8.6 billion in stock and cash to buy nearly five million rural phone lines across 14 states from Verizon Communications Inc.

AT&T, meanwhile, sheds operations in a state that is isolated from the bulk of its service territory in the Midwest as it focuses on its wireless operations and contemplates an expansion into Europe. The company has expressed interest in selling noncore assets while hinting at making overseas deals and ramping up spending on its U.S. network.

Ms. Wilderotter said the deal was in the works for years, as she and AT&T CEO Randall Stephenson tried to find a time that worked well for both companies. It will for the first time give Frontier operations in its home state. About 2,700 employees supporting AT&T’s operations in Connecticut will transition over to Frontier.

AT&T’s Connecticut operations largely come from the old Southern New England Telecommunications Corp. which SBC Communications Inc. acquired for about $4.3 billion in stock back in 1998 before it changed its name to AT&T. The operations bring in about $1.2 billion in annual revenue for AT&T, less than 1% of its total.

The deal is subject to review by the U.S. Department of Justice, the Federal Communications Commission and other regulators. Frontier, which expects to complete the acquisition in the second half of 2014, will operate in 28 states following the deal.